Asymmetries in trade - Norway and the Eastern Enlargement An Empirical Study

In April 2004 the number of member states in the European Union increased from fifteen to twenty-five, the biggest enlargement in the history of the EU in terms of new member states and population. Among the ten new members were eight Central and Eastern European countries, the "accession eight" (A8). The integration of these eight countries into the EU became known as the Eastern Enlargement. In this thesis I analyse the impact of the Eastern Enlargement on the trade in goods between Norway and the A8. To identify this effect I use two different econometric approaches. First, a Difference in Difference (DiD) regression with fixed effects, and with different control groups. Then a gravity equation regression is applied to a larger dataset. For both types of regressions I use data from the BACI dataset provided by CEPII. The main finding is a large asymmetry between the impact the Eastern Enlargement had on Norwegian imports from the A8 compared to its exports to the A8, regardless of methodology used. I find a large positive, and significant, effect on Norwegian imports after 2004. I do not find a significant effect on Norwegian exports in the DiD regression, but in the gravity regression I find a negative 16 percent effect of accession on Norwegian exports to the A8. The asymmetry between the effect on imports and exports is puzzling and deviates from predictions of the gravity model